WHY ARE TAX CUTS NO LONGER A PRIORITY?

Now here’s an interesting article:

http://www.stuff.co.nz/national/politics/6158896/Tax-cuts-no-longer-a-National-priority

I wonder why cutting income tax is now such a low priority? It wasn’t three years ago. Could it be that tax-cuts are a low priority because of the government’s legislative workload? Hang on – I thought the bulk of the government’s legislative workload was geared towards economic policy? And isn’t tax one of the key tools of this government’s economic policy?


And therein lays the key implied admission by tax-cuts being “near the bottom on the list of National's priorities”: lowering income tax doesn’t work. Lowering income tax doesn’t bring utopia prosperity. Lowering income tax doesn’t filter-down wealth to the impoverished. Lowering income tax doesn’t create a swath of new jobs. Lowering income tax doesn’t bring back the thousands of Kiwis who have migrated to Australia.

In fact, all that results in lowering income tax is this:
• It empties the government’s coffers of much-needed tax revenue. Governments then find new taxes to fill them – usually regressive taxes – such as increased GST, increased power bills, or increased duty on fags and booze.
• It gives more money to those who already have it, not to those who need it
• The rich get richer, and the poor get poorer

Let’s be quite clear: when I talk about “the rich,” I am not talking about hard-working small business operators, successful sales people, or successful information-age professionals. I’m talking about over-paid executives who continually command pay rises at obscenely higher rates than their employees. I’m talking about people who make money simply because they already have lots of money. I’m talking about people who exploit suppliers, customers and staff – and give back far, far less than they take out. I’m taking about people who actually don't need tax cuts. So when I talk about increasing tax, and not cutting tax, I'm referring to income tax at the high-end.

One of today’s wonders is the internet and the wealth of information that is freely available to all of us. And that has changed our thinking. We don’t blindly accept (well, most of us don’t) when a politician tells us that something is. When a politician spins, we can now jump on the computer and conduct some research (Hah! Like I did!).

When Margaret Thatcher was carving out her “New Age” in the 1980s, Norman Lamont and Tubby Lawson were heralding the arrival of M-O-N-E-T-A-R-I-S-M. “Ooooooooooh!” we all cooed, “Sounds impressive.” Before the internet and easily-available economic information, the western democracies accepted monetarism as the solution to stagnating economies. We let it happen. Top founding monetarist Milton Friedman became a chief advisor to Ronald Regan, and Regan thought the Laffer Curve was the most important economic diagram of the millennium. Margaret Thatcher followed suit in the “Special Relationship” between Ron-Margaret and US-UK. Poor Dennis Thatcher: how could he compete with the President of the USA and a film star (albeit a damn poor one on both counts)?

The Laffer Curve (illustrated right) determined that if you increase tax to a point, you actually lower tax revenue returns, because tax evasion becomes worthwhile. So, the Laffer Curve determined that if you lower tax, you actually increase tax revenue because the logic works in reverse (yes, that’s the theory!). At the equilibrium point, profits for business, taxes for the government, and happiness for the rich are all in sync. Monetarists will always claim the current tax rate is to the right of the curve (Point B). But just try getting those said pundits to put their head on the block and determine that optimum tax rate! In other words, the Laffer Curve is another hokum theoretical economic model.

However, Ron and Maggie loved it, and adopted it. America plunged into debt, but Britain actually climbed out of debt.

Then came the reports in the mid-1980s that Milton Friedman had fiddled the figures in his research, and so monetarism was a farce. How then, did British monetarism allegedly succeed? How did the UK national debt reduce? It wasn't due to tax cuts. It was because monetarism, chiefly a US concept, didn’t factor-in privatised industries – the USA had none! Thatcher gave away £2b a year in tax cuts, on the back of £2b a year in public asset sales. The conclusion for us all, including our new shining New Zealand government? Tax cuts don’t reduce national debt. Far from it. All that happens with a tax-cutting regime is that the rich have more, and the needy are further deprived. Thirty years of monetarism, 30 years of a tax-cutting culture, and what do we have:

• “US Affluent Classes Dwarf China and India”
• “Wealth Gap Hits 30 Year High”
• “NZ Rich-Poor Gap Widens Faster Than Rest of World”

It’s taken us 30 years of social deprivation to wake up. In the Austerity Wars of 2011, was the talk in Europe about tax cuts to bring prosperity and reduce debt? Far from it. Europe, and now even America, is considering increasing income tax at the high-end, to drag itself out of debt and recession:

http://www.stuff.co.nz/business/world/5653077/Obama-tax-rich-to-cut-deficit

Because monetarism doesn’t work. Because cutting high-end income tax doesn’t work.

As I was writing this, I was so wrapped up in the economics, I almost forgot about the social aspect of tax cuts! And therein lays the fundamental problem with the right-wing government which runs our economy. It’s all about the numbers. What do you think are the social effects of tax cuts? Consider how the needy and impoverished feel, as they watch the rich grow richer. Consider how the low-waged feel as power, rent, milk, rates, all rise above their ability to pay for them.

http://www.stuff.co.nz/national/5989843/Revealing-the-gap-between-NZs-rich-and-poor

What reminded me about the social aspect of increased impoverishment, were the words of my flatmate in 1995, when I lived in Wimbledon. Jim Deighton was arguing against our other flatmate, Sam, whose wealthy daddy “paid too much tax.” Jim's words, while harsh, had a crude truth about them:

“So here’s the thing, Sam,” says Jim. “If you deprive the poor of social programmes, self-help programmes, and adequate living, then they’re going to come into your fancy street, and they’re going to come into your fancy house and they’re going to rob your f*cking home.”